Friday, January 30, 2009

Phase C of a Wyckoff Accumulation?

I ran into Richard Wyckoff's work a couple of months ago (via Stock Chartist). Wyckoff was a contemporary of Charles Dow and in 1907 both were searching for ways to better understand and avoid financial and banking crisis. Wyckoff's multi-phased models of accumulation (bottoming) and distribution (topping) are particularly fascinating - I've included his accumulation model above. Now, if we try to apply this to the last 18 weeks of S&P 500 activity, the resemblances are striking:

If the Wyckoff accumulation model holds and we are indeed in the latter stages of Phase C, we are headed to 800 very soon, followed by a massive bounce past 1000. It will be interesting to see how accurate a predictor this Wyckoff model proves to be...

UPDATE: Regarding support at 800 - don't confuse my amateur interpretation of Wyckoff's accumulation model with the notion that I believe we're going to bounce up from there. I'm certainly not counting on a bounce myself. And as I noted, it's not even clear that we've entered Phase C. If we bounce on low volume like we did last week, then we could still be in Phase B of a Wyckoff accumulation (I struggled to identify a clear "creek" when I put this together which is the hallmark of Phase C - and the reason I put question marks on the Phase C and Spring labels). If we drop significantly below 740 then the accumulation has failed and we're heading much lower so we would be back to a new Phase A at best.

One final caveat: Given that Wyckoff's work is over 100 years old, there's nothing sacred about it - it may or may not be an accurate model for what we're dealing with today. But it's an interesting starting point from a man who saw this behavior a century ago for modeling a class of market behavior that is very unfamiliar territory for most of us today.


  1. good finding. but it looks like we haven't reach the 6 creeks yet. we will see.

  2. I, too, have been watching for the possibility of the "Wyckoff Spring" setup for a while now. I would guess that we're currently in the secondary test level (7 Spring in your diagram). My interpretation is that the "creek" is basically the 50-day MA (at this point, at about 855). We would need to see a "show of strength" to this level within the next few weeks.